Market Overview

10 July 2020

Runaway Buying of the Dollar Resumed

The Greenback rose slightly against a basket of major reserve currencies as a result of the increased safe-haven demand. The U.S. Dollar Index Futures for September (DXU0) added in value over the previous 24 hours from 96.20 dip to 96.96 local peak by the beginning of the European morning, but retreated back to 96.70 before midday as soon as the U.S. S&P500 and the Dow Jones Industrial Average (DJIA) index futures tried to rebound.

Some investors were scared by a mixed performance of U.S. stock indexes on Thursday, which took place due to repositioning in higher-priced assets and also because of fresh spikes in coronavirus cases. Daily statistics show that America has made a new nationwide record of more than 60,000 cases, accompanied by rather contradictory shutdown option comments by the influential White House health expert Dr. Fauci.

Worries do not look too strong yet, but European markets also opened lower today, affected by the global wave. Besides, many European companies are looking forward to more real fiscal stimulus but they are rather disappointed with the clear fact that little fresh information emerged about the widely discussed 750 billion Euro recovery fund for national economies. The Eurogroup met virtually just yesterday, but the only public result from the meeting was that the Finance Minister Paschal Donohoe from Ireland has been elected as a new chairman.

The plan is probably being watered down with fundamental disagreements of the countries on the share of non-refundable loans. So far, the EU budget donors, such as Austria, Denmark, the Netherlands and Sweden, are opposed to increasing spending in the community. A regular meeting of the European Central Bank on July 16 could theoretically be the next reference point. But financial Europe may probably have to wait at least for the upcoming meeting of the country leaders on July 17-18 for any further news. Before these dates the Old World market may suffer from a lot of technical struggle or follow the general mood of U.S. stocks if the situation becomes more clear across the ocean.

 Just a couple of days before the European Commission announced that the Eurozone economy is still on course concerning its biggest contraction, the commission made a forecast that the economy will see a decline of 8.7%, but this forecast was made on the assumption that there will not be a second wave of the virus and a second lockdown. At the same time, the relatively small but quick rebound of the European markets today was nudged by industrial production data from Italy, which already recovered by 42.1% in May compared to a complete failure in April. This is above the average expectation of a 22.8% recovery in Bloomberg polls. But the Italian manufacturing volume at the end of May 2020 is still 20.3% lower than in May 2019. 

Still, this rebound in European indexes gave a little boost to the single European currency, which bounced back from its morning support levels around 1.1250 by almost 50 basis points in total, reaching the 1.13 area again. Danske Bank even calls for EUR/USD to reach 1.15 a one to three month period. “Recent virus problems in the U.S. present a material risk to the U.S. recovery in the coming months, whereas the euro area service sector recovery is set to continue barring any second virus waves during the European holiday season,” said analysts at Danske Bank, in a fresh research note. However, keeping in mind any medium-term technical prospects for the movements in EUR/USD or other currency instruments, most traders are likely to continue to look for practical technical evidence about their ideas on intraday charts, and they are not likely to bet blindly only on working out the fundamental differences in recovery paces of Europe, America and the rest of the world.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus
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